The globalized economy: who wins & who loses.

A specter is haunting Europe--the specter of Anglo-American market capitalism. This threat dominated the French student unrest in March and April, and motivated popular rejection in France a year ago of the proposed new European Union constitution. The election in Italy that has just given the country a narrow and fragile center-left coalition, and recent conflict in German industry, involved the same question: How to remodel national economies, or whether to remodel them at all.

The EU Commission is also involved, since under the new presidency of Jose Manuel Barroso, the Commission is seen by a broad part of the Left--certainly in the older EU countries--as trying to impose the Anglo-American model, widely supported among the new EU member states from the old Communist bloc.

Advocates of the new-model capitalism, and the globalization project that goes with it, like to present it as an expression of historical necessity, rooted in classical economics and embodying irrefutable laws. It is progress itself, they say. Those who do not conform to the rules of modern market capitalism, and do not offer the human sacrifices of lost employment and diminished living standards the market demands, will fall by the wayside of history.

This is simply untrue, although most of those who say it undoubtedly think it is true. The new American and British market-capitalist model, which dictated deregulation of industry and privatization of state enterprises in the 1970s and globalization of international markets in the 1990s, exists as a result of free political decisions and ideological choices that were anything but inevitable. History may one day describe them as having been perverse and socially destructive.

Two of the most important influences on the new capitalism were academic in origin, and the third, improbably, was an instance of romanticized egoism. The first influence was monetarist economic theory. This in principle excluded social considerations from economic policy decisions. Government economic policy was to be made chiefly in response to a single objectively determinable factor, the money supply. The effect of this new theory was to "dehumanize" economic policy, previously held to be closely related to political considerations, as was the case with the Keynesian tradition that monetarism challenged.

The second influence was primarily political, a reaction to twentieth-century totalitarianism. Its author was the Anglo-Austrian political theorist and economist (later Nobel laureate) Friedrich von Hayek. Working in London in the 1930s, the young Austrian began as a critic of Keynes, but eventually widened his argument to assert that state intervention in society, even in democratic political systems, amounted to a Road to Serfdom (the title of a book he published in 1944). State intervention in economy and society threatened human liberty. The free market produced economic efficiency and human freedom. Hayek greatly influenced Margaret Thatcher and other conservative British intellectuals who provided the program on which she eventually won power in 1979, in circumstances of ineffectual Labour government, inflation, and abusive trade unionism.

The third influence was an eccentric one, important in the United States. It was the creation by a Russian-American novelist, Ayn Rand, of a "philosophy" of heroic egoism and pursuit of individual self-interest (against the mob and the weak) by superior persons. Gary Cooper played the hero in the film of her most popular novel, The Fountainhead. Her ideas responded to the longings of impressionable college students (including Alan Greenspan) who saw themselves as superior persons, and her views became something of a midcentury American cult, if not a sect.

This is what underlay the transformation of American corporate culture and of the American business corporation from an institution with national identity, constrained to reconcile interests of owners, employees, and community, into the modern global corporation, effectively controlled by its managers and mandated to the single objective of producing "value" for stockholders, while handsomely rewarding its executives.

This change transformed labor into an anonymous commodity and put both blue-collar and white-collar staff into competition with an effectively unlimited global labor supply, resulting in employment insecurity, reduced or static wages, diminished or eliminated benefits and pensions, and the destructive social pressures of falling living standards.

In the United States, the new model of corporate business has evolved toward a form of crony capitalism, in which business and government interests are often corruptly intermingled. Further, the system is resistant to reform because of the dependence of both major political parties on financial contributions.

Rather than a progressive step in the development of a new international economy, frequently described by its supporters in utopian terms, the political-economic system that has evolved in the United States has proved regressive in crucial respects, as well as inefficient and abusive of the public interest.

Europe, one would think, should be looking for social and economic evolution on its own terms and according to its own values. It is perfectly capable of doing so, as a modern industrial society, in aggregate terms larger and wealthier than the United States, as well as less shackled by obsolescent ideology and entrenched special interests--its problems with union corporatism notwithstanding.

In the longer term, were Europeans to embark on this project, instead of conforming to the currently received wisdom concerning the globalized economy, it would serve the international interest as well as that of the European Union. It might even prove a service to the United States, where economic and fiscal policy error and excess, and unachievable global political and military ambitions, jeopardize the nation's future.

[c] 2006, Tribune Media Services International